Inside Health

As Big-City Tax Burdens Go, New York's Is the Heaviest, an Analysis Finds

By SEWELL CHAN

Published: February 22, 2007

New York City has long had a notorious reputation for high taxes, but an official analysis released yesterday shows just how much the city stands out in this regard: State and local taxes swallow $9.02 out of every $100 in household and business income, putting New York's tax burden far above those of the eight other American cities with populations over one million.

The city's Independent Budget Office, which prepared the report, is widely seen as the authoritative source of nonpartisan fiscal and economic analysis for New York. The office tackled the same issue in a 2000 report, with similar findings, but this time, it factored in state taxes in comparing the nation's largest cities.

The new analysis attributed much of the disparity between New York and the other cities to the exceptionally high costs New Yorkers bear for Medicaid, the health insurance program for the poor that is run by the federal and state governments but partly financed by the city.

The average state and local tax burden for the other eight cities in the analysis was $6.16 of every $100 in gross taxable resources. Philadelphia ($7.16) came in a distant second to New York, and Los Angeles ($6.88) came in third, according to the report.

The analysis considered total tax burdens -- not the way they are distributed -- so it cannot be used to calculate whether a family would pay less in taxes outside of the city. Nonetheless, the findings were seized on by politicians and others who have raised alarms about the tax burdens New Yorkers face, through a city income tax that tops out at 3.65 percent and a state income tax with a ceiling of 6.95 percent, along with property and sales taxes.

Representative Anthony D. Weiner, a Democrat who represents parts of Queens and Brooklyn and ran for mayor in 2005, called the report ''a surprise to no one.'' He called for imposing hefty surcharges on incomes over $1 million and lessening the tax burden on the poor and the middle class.

Kathryn S. Wylde, president of the Partnership for New York City, the city's leading business group, warned that the report signaled that the city was overly reliant on high taxes to finance its expansive government, and that any cooling of the real estate market could magnify that problem.

''As the economy flattens out or stabilizes, there is no way to sustain the current tax rates and still meet the expenses we've established,'' she said. ''This is a long-term problem, and any business looking down the pike sees that New York is in a position where it will have to raise taxes on businesses or high-income individuals.''

David R. Belkin, a senior economist at the Independent Budget Office and the lead author of the report, cautioned that taxes were only one factor in deciding where to live, work and invest.

''This report compares how much state and local governments are taxing in the largest U.S. cities -- not what services these governments are providing their taxpayers,'' he said. ''Households and businesses look at both sides of the ledger in deciding whether a given tax level is too much.''

On the expense side, according to the analysis, New York is exceptional because of the city's high share of costs associated with Medicaid and, to a lesser extent, Temporary Assistance to Needy Families and other welfare programs.

''In no other big city did the municipal or county government face a remotely comparable mandate to fund transfer programs,'' the report found.

Without the cost of those two programs, the report said, the city's tax burden would be much closer to the average of the largest cities.

Although property taxes often dominate the local political discussion, the report found that property and sales taxes in New York City were roughly comparable relative to the other eight cities: ''It is in the area of income taxation -- personal and business -- that New York City really stands out.''

However, Rae Rosen, a senior economist and assistant vice president at the Federal Reserve Bank of New York, warned that it was simplistic to compare New York with other large American cities. Unlike the largest cities in California and Texas, New York City is the pre-eminent economic engine of the state, she said, so it will inevitably bear a large proportion of the state's tax burden.

She also noted that businesses stayed in New York even though labor and rent were their biggest expenses, not taxes. ''If businesses are willing to locate here and pay some of the highest wages and rents in the nation, that's by choice,'' she said.

The earlier report, in February 2000, found that in 1997, local government taxes alone absorbed $7.99 of every $100 in taxable resources, 79 percent more than the average in the next nine largest cities, $4.47. (The comparable figure for local taxes alone, according to the new study, is 90 percent greater than the average in the next eight largest cities.)

However, the office said those figures could not be directly compared to the figures in the new report, because of several adjustments in methodology, including the addition of state tax burdens to the new report. The new analysis is based on data for 2003-4 from the Census Bureau and the Bureau of Economic Analysis, both parts of the United States Department of Commerce.

New York, despite its high concentrations of wealth, is hardly the richest big city per capita. New York's gross taxable resources -- resident personal incomes and gross business operating surpluses, or income minus employee compensation -- averaged $61,622 per resident, trailing Dallas ($74,383), Houston ($72,835) and San Diego ($63,814).

In general, the cities with weaker tax bases -- San Antonio, Philadelphia, Phoenix and Los Angeles -- tended to have higher overall tax burdens than the wealthier cities: Dallas, Houston and San Diego. (Of the nine cities, Chicago was slightly below average in both per capita taxable resources and tax burden.)

''New York City sits far outside the trend line,'' the analysis found, with a stronger tax base than most large cities, but also a much higher tax burden.

New York also led the nine cities in the ratio between local and state taxes. Of the total state and local tax burden in New York, 62.3 percent went to the city or the Metropolitan Transportation Authority, and only 37.7 percent went to the state. In San Diego, Los Angeles, Houston, Phoenix and Dallas, the state's share of the tax burden was more than half.

Even with a smaller share of the total burden, New York's state taxes are still, on average, higher than the other cities'. ''The supposition that high New York City municipal taxes are offset by relatively low state taxes is not sustained,'' the report found.

Chart: ''Reputation Meets Reality''
Taxes paid by residents and businesses in New York City compared with those in other major cities. Below, taxes in 2003-4 per $100 of gross taxable resources.